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Pipeline Safety Act: Risk and Insurance Issues

By Andrew Braker

In response to several high profile and significant pipeline failures, Bill C-46 was introduced to more strictly legislate and regulate the ownership and operations of pipelines regulated by the National Energy Board.

The Act introduces several new concepts including stratification of crude/liquids and natural gas pipelines into three separate classes, with corresponding legislative impact, in relation to:

Absolute Liability for pipeline operators – companies operating pipelines are liable, up to a prescribed amount, for incidents from their pipeline regardless of fault or negligence. This is in addition to pre-existing legislation which imposes Unlimited Liability on pipeline operators
Financial Resource Requirements for pipeline operators/owners to demonstrate that they have the financial capacity to respond to an incident. The Financial Resource Requirement is evergreen, meaning it must be in place for the lifetime of the pipeline. Acceptable forms of security include a promissory note, insurance policy or insurance certificate, letter of credit, line of credit, parental guarantee, participation in an accepted pool fund, cash or cash equivalents or a surety bond or equivalent.
Minimum Readily Accessible Financial Resources. A percentage of the Financial Resource Requirements must be available immediately. This requirement is proposed at 10% of the overall applicable limits, and can be made up of cash or cash equivalents, secured line of credit, pooled funds or a letter of credit.
Pooled Funds. The legislation provides the opportunity to meet Financial Resource Requirements through the use of a Pooled Fund reserve established by pipeline companies though we are not aware of any in existence at this time.

OIL Pipeline Classification and Financial Responsibility

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